Trading Fundamentals
The basic units of price and trade size, including how pip value is calculated for currency pairs.
A pip - short for 'percentage in point' - is the standard unit of price movement in forex. For most pairs, a pip is the fourth decimal place (0.0001). For JPY pairs, it's the second decimal place (0.01). When EUR/USD moves from 1.1000 to 1.1001, that's a one-pip move.
Many forex prices are quoted to one extra decimal place - the fifth decimal for most pairs and the third decimal for JPY pairs. This extra digit is called a pipette, or fractional pip. Fractional pricing allows smaller price increments and more precise quote display.
Lot size determines how many units of the base currency are being traded. A standard lot is 100,000 units, a mini lot is 10,000 units, and a micro lot is 1,000 units. Smaller lot sizes may help traders adjust exposure and position size based on account size and risk parameters.
The monetary value of one pip depends on the lot size, currency pair, and account currency. For many USD-quoted pairs, one standard lot is approximately USD 10 per pip, a mini lot is approximately USD 1 per pip, and a micro lot is approximately USD 0.10 per pip. Pip value can differ for JPY pairs, non-USD quoted pairs, and accounts held in another currency.
Position sizing can be estimated by comparing the amount a trader is willing to risk, the distance to the stop-loss level, and the pip value of the currency pair. Some traders use a fixed percentage of account equity, such as 1–2%, to define risk per trade, though the appropriate amount depends on account size, market conditions, and individual risk tolerance.
Pips and lots are important building blocks of forex trading. Understanding how price movement and trade size interact can help traders better understand position sizing, potential profit or loss, and how orders are displayed on the platform.
Open a free demo account to explore pip value, lot sizes, and position sizing using virtual funds in a simulated trading environment.